Tanker Market Presentation

Lloyd’s List Intelligence

Executive Meeting 2020

Gothenburg

January 16th 2020

2Lorentzen & Stemoco 2

L&S’ Global Presence

Oslo

New York City

Singapore

Shanghai

Hong Kong Corp Services

Athens

S&PNewbuildingOffshoreGasResearchFinance

Dry CargoS&P

Dry CargoS&P

S&PNewbuildingResearchFinance

Dry CargoS&P

Servicing clients on around-the-clock basis

Copenhagen Newbuilding

Highlight

Lorentzen & Stemoco - Track Record

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1 x VLCC2nd hand sale

1 x VLGC (ECO) Newbuildings

2 x Product Tank Newbuildings

9 x Chem. Tank 5y TC with option

3 x Chem. Tank Newbuildings

2 x Tanker Conversion

2 x Handysize Newbuildings

3 x Supramax Newbuildings

2 x Suezmax2nd hand sale

2 x VLGC Newbuildings

12 x UltramaxNewbuildings

2 x Chem. Tank Newbuildings

1 x SupramaxNewbuilding

2 x VLGC (ECO)Newbuildings

‘Åsta Hansteen’Process module

1+1 DP Shuttle tankers

4 x UT 771PSV’s

2 x Suezmax2 x Semi sub

(today Seadrill)

2 x FPSO

Gjøa FPU5 x Conversion of Suezmax

2 x Shuttle tankers

FPSOOctabuoy

3 x FPSOSevan

2 x Sevan UDW semi

2 x SevanAccomodation

2 x Sevan UDW semi

1+1+1 DP Accommodation

2 x DP Shuttle tankers

Selection of asset transactions

1 x Midsize LPGNewbuilding

4 x HandysizeNewbuilding

Shipowners considering new types of bunkers for next generation of vessels

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Executive summary

Source: L&S Research

• Recent oil events will:

• Redefine demand for dual-fuel propulsion• Drive requirements for new generation

newbuildings• Higher costs associated with oil will spell

redundancy of ageing existing vessels

World economy facing downside risks

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World economic outlook

Source: IMF, WTO, L&S Research, BIMCO

Column1 2016 2017 2018 2019 2020

U.S. 1.50 % 2.20 % 2.90 % 2.40 % 2.10 %

Euro Area 1.80 % 2.40 % 1.90 % 1.20 % 1.40 %

Japan 0.90 % 1.90 % 0.80 % 0.90 % 0.50 %

China 6.70 % 6.80 % 6.60 % 6.10 % 5.80 %

India 7.10 % 7.20 % 6.80 % 6.10 % 7.00 %

World 3.20 % 3.80 % 3.60 % 3.00 % 3.40 %

• IMF will update World Economic Outlook onJanuary 20th 2020

• Based on IMF’s WEO October 2019, worldeconomic growth of 3.0% expected in 2019and 3.4% in 2020

• Growth outlook for 2019 and 2020 wasrevised down by 0.2 and 0.1 percentage point

• Global economic growth has fallen,particularly for emerging markets

• Global trade has come to a near standstill,exacerbated by increased trade tensions

• Continued macroeconomic policy expected tolift growth moderately this year

Global demand for refined products, light and middle distillates

Source: L&S Research, BP Statistical Review, AXIOS

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• Global demand for refined productsis increasing particularly for lightand middle distillates

• Relatively sharp upturn in demand for gasoil associated with the IMO 2020 marine sulphur regulations

• Gasoline will be in higher demand, but may be slowly phased out because of more fuel efficient vehicles and penetration of electrical vehicles

• Fuel oil will be loosing out, with a dramatic reduction foreseen in 2020

• Demand for oil estimated to grow by >1 mbd in 2019 and 1.8 mbd in 2020, respectively

• OPEC oil production cut additonally by 0.5 mbd in addition to the 1.2 mbd already agreed

• Non-OPEC production growth to be led by the US, Brazil and Norway

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1) Oil demand growth still growing robustly

Oil market tightening into 2020

Source: Lorentzen & Stemoco Research, IEA

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China increasing crude oil imports

China’s crude oil imports have increased massively

Source: OPEC/L&S Research

• China’s crude oil imports increased substantially in Q4 2019

• In November 2019, imports were record-high at 11.1 mbd, growing from <10mbd in August ‘19

• By comparison, imports to Japan and India have remained relatively constant

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Chinese refineries have ramped up crude throughput

Refineries have prepared for IMO 2020 by increase crude oil imports and ramping up production

Source: OPEC/L&S Research

• Chinese refineries have increased crude throughput

• Higher runs as refineries have prepared for the IMO 2020 regulations with more compliant fuel

• Lower refinery intake of crude oil to produce heavy fuel oil largely shunned by the market

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2) Middle East unrest caused havoc in tanker market

Massive vacuum left by Saudi loss led to more ton-mile demand for tankers

Source: IEA/L&S Research

• Drone attacks on Saudi oil production, tankers trafficking the Middle East Gulf and top Iranian general

• Far East refineries scrambling to find other sources of supply, calling on the farther-away US for extra supplies

• OPEC taking the role as provider of last resort, cutting production as non-OPEC producers ramping up output

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3) Record number of tankers off-market

Increasing share of the tanker fleet effectively removed from the competitive market

Source: IEA/L&S Research

Venezuela/PDVSA

Iran/NITC

• US sanctions against Venezuela and NITC have left many tankers off-market

o According to IEA, some 66.1 mb of oil, > 30 VLCC equivalent vssls, in floating storage storing crude in Iran

• About 30% of VLCC fleet to be installed with scrubbers

o Some 30 VLCCs currently being installed with scrubbers

• Roughly 10% of VLCC fleet off-market

o Tightening demand-supply balance

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US shale oil production being ramped up, crude exports abt 4.5mbd

US crude exports radically increased to 4.5mbd, upward potential

Source: Baker Hughes

Sharp upswing in crude oil tanker freight rates

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VLCCs rates continue at abt. US$ 100k/day

Source: Baltic Exchange/ L&S Research

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L&S tanker market estimates, US$/day on TCE basis

Forecasts vessel earnings

Source: L&S Research

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Low orderbook of tankers compared with existing fleet

Particularly low orderbook for product tankers

Source: L&S Research

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Market takes firmer stance on oil prices following Middle East unrest

Downward slope in forward oil prices will be positive for tanker demand

Source: Lorentzen & Stemoco Research, Futures TradingCharts.com

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Yet market believes oil prices will hover over natural gas prices

Oil prices have increased more than natural gas prices for last ten years

Source: Baker Hughes

• International Maritime Organization (IMO) has progressively tightened the limits on Sulphur oxides

• For ships operating outside designated emission control areas the current limit for Sulphur content is 3.50% m/m

• From January 1st 2020, the limit for Sulphur in fuel used onboard ships operating outside designated emission control areas will be reduced to 0.50% m/m (mass by mass). This is meant to significantly reduce the amount of Sulphur oxides emanating from ships

• There is an event stricter limit of 0.10% m/m already in effect in emission control areas (ECAS) which have been established by IMO. This 0.10% m/m limit applies in the four established ECAS:

o The Baltic Sea area

o The North Sea area

o The North American area

o The US Caribbean area

• Fuel oil providers already supply fuel oil which meets the 0.10% m/m limit

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IMO Sulphur 2020

Source: IMO

• World demand for oil is reaching 100 million barrels per day (mbd)

• The merchant fleet is consuming somewhere about 3.5 mbd, meaning 3.5% of global oil demand

• The merchant fleet is counting about 60,000 vessels in total:

o About 2140 vessels of vessels operating or under newbuilding will be installed with scrubbers, according to figures by the scrubber manufacturers. These vessels will continue to run on HFO

o Another 200 vessels will run on LNG, and only 6 vessels will run on LPG, according to the latest available market figures

o The rest will run on MGO, or a blend of low Sulphur fuel oil.

• By implication, the merchant fleet will almost stop using HFO, and only a few will be using LNG or LPG, meaning most vessels will be running on MGO or a blend of low Sulphur fuel oil.

• This means that demand of 3.5 mbd of HFO will be substituted for by 3.5 mbd of MGO, creating havoc to the fuel prices

• The price delta between HFO will depend in large on how ready the oil companies are in coming to the market with 0.5% m/m spec MGO

• Moreover, if the price of HFO plummets to coal-equivalent levels, demand for scrubbers could pick up, improving demand for HFO and levelling out the differences

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Response to the 2020 deadline

Source: L&S Research

Shipowners considering new types of bunkers for next generation of vessels

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Conclusion

Source: L&S Research

• Recent oil events will:

• Redefine demand for dual-fuel propulsion• Drive requirements for new generation

newbuildings• Higher costs associated with oil will spell

redundancy of ageing existing vessels

• Prospects of relatively high oil pricesmeans shipowners and charterers arefearing bunker costs out of control

• International shipping contributes to2.5% of world emissions of CO2

• Aim to reduce emissions by 50% by2050, compared to 2008-levels

• Using natural gas will reduceemissions by 20%

• To cut further, alt. for ex. hydrogen

Oslo (head office)Lorentzen & Stemoco ASMunkedamsveien 45,0250 OsloNorway

Tel +47 2252 7700

AthensLorentzen & Stemoco (Athens) LtdErmis Building2nd floor82, Vass. Pavlou AveVoula 166 73Greece

Tel +30 210 89 000 59

SingaporeLorentzen & Stemoco Singapore38 Scotts Road, The Scotts Tower #10-02Singapore 228240Singapore

Tel +65 6349 8400

ShanghaiLorentzen & Stemoco Shanghai Representative OfficeRoom E2F, 15/F, Broad Silver International Building,No. 398 Huai Hai Zhong Rd,200020 ShanghaiChina

Tel +86 21 6391 5880

LondonLorentzen & Stemoco UK Ltd5th Floor, Dacre House19 Dacre StreetLondon SW1H ODJEngland

Tel +30 210 89 000 59

Hong KongLorentzen & Stemoco (Greater China) Hong Kong LtdFlat A, 22F Sing Ho Finance Building166-168 Gloucester Road Wan HaiHong Kong

Tel +852 2530 2164

For more information on Lorentzen & Stemoco and our global representation visit us at Lorstem.com

New York CityLorentzen & Stemoco AS (USA)501 5th Avenue – Suite 1707New York, NY 10017

Tel +1212 684 2503

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